ABSTRACT
In contrast to Britain and despite recent efforts, Germany is still seen as being in need of
institutional reform. The symptoms of Germany’s problems include persistently high
and apparently ever-increasing unemployment, low employment growth, as well as
slow economic growth over the past decade.1 In terms of these indicators, the
German economy has lagged behind those of most other EU member states since the
early 1990s.2 By contrast, British economic growth and labour market performance
has been quite good recently, which stands in contrast to its past performance, and
also the performance of other EU member states over the same time period, especially
Germany (see Table 1). Whereas in the 1970s Britain was regarded as the ‘sick man of
Europe’, this has changed considerably since the mid-1990s, when Germany, rather
than Britain, was unable to decrease (standardised) unemployment rates. In fact, unem-
ployment has risen steadily to its current level of just over 9 per cent in Germany, as
opposed to the steadily falling unemployment rate in Britain, which has been below
5 per cent for some years. In general, Britain’s superior performance can largely be
explained by institutions that are better adapted to current structural changes than is
the case in Germany.3 The early sections of this paper will explain – in a stylised
way – the general background of the relevant institutions and labour market develop-
ments in both countries since the mid-1970s, when symptoms of crisis first emerged in
western Europe.
